Direct General Insurance v. Houston Casualty Co.

Citations: 139 F. Supp. 3d 1306; 2015 U.S. Dist. LEXIS 143847; 2015 WL 6160361Docket: Case No. 14-20050-Civ-COOKE/TORRES

Court: District Court, S.D. Florida; September 30, 2015; Federal District Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

The court order details the ruling on a motion for summary judgment involving two large insurance companies, Direct General Insurance Company and its parent company, Elara Holdings, Inc. The disagreement centers around the interpretation of the insurance policy terms related to personal injury protection (PIP) benefits under Florida law. The case has attracted extensive litigation, including class actions and individual lawsuits, accumulating numerous PIP claims over five years.

Direct General is insured under a professional liability insurance program for the period of March 30, 2008, to March 30, 2009, which includes a primary policy from Indian Harbor Insurance Company and two excess policies from Houston Casualty Company and National Specialty Insurance Company. The primary policy has a $10 million liability limit, with the excess policies providing an additional $10 million each.

Key policy terms include provisions for loss payment for claims made during the policy period for wrongful acts committed after a specified retroactive date. Related claims are treated as a single claim based on the earliest made claim. The definitions stipulate that a "Claim" encompasses any civil proceeding or written demand indicating intent to hold an insured responsible for a wrongful act, while a "Wrongful Act" pertains to any act, error, or omission by the insured in providing professional services. Professional services are defined as those performed for monetary consideration in accordance with an insurance policy or contract. The court has granted the defendants' motion for summary judgment after reviewing all motions, responses, and relevant legal authorities.

Loss is defined as the legal obligations of an Insured to pay damages, judgments, awards, settlements, and Defense Expenses due to a Claim. Defense Expenses include reasonable legal fees and expenses for defending or appealing any Claim. Loss excludes penalties, uninsurable matters, and amounts due under any insurance contracts with the Insurer. The Policy requires Insurer consent for incurring Defense Expenses or settling Claims, which cannot be unreasonably withheld. However, the Insured may settle Claims without prior consent if the Loss does not exceed 50% of the applicable retention, with prompt notification to the Insurer required. The Insurer can participate in settlement negotiations if the expected Loss exceeds this threshold.

An endorsement mandates that the Insured must notify the Insurer in writing about any Claim with full details as soon as practicable, but no later than 60 days after the Policy Period ends. Direct General's obligation for this notice is triggered only when its General Counsel is aware of a Claim, as it lacks a risk manager.

The Florida PIP statute underwent revisions in 2003, including a sunset clause that led to its expiration on October 1, 2007, as it was not reenacted. However, it was reenacted effective January 1, 2008, retaining the "Reasonable Amount Method" for reimbursements and adding a "Fee Schedule Method" based on 200% of the Medicare Part B fee schedule. The 2008 PIP Statute is incorporated into all auto insurance policies in Florida, and Direct General has since applied this method for reimbursements related to auto accidents post-January 1, 2008. The company routinely receives demands for PIP benefits from healthcare providers.

On June 19, 2008, Advantage Open MRI initiated a lawsuit against Direct General in Florida state court, referred to as the Advantage MRI Action.

Advantage MRI filed a proposed Second Amended Complaint on October 3, 2008, seeking class certification for Florida healthcare providers who delivered MRI services to Direct General’s PIP insureds since January 1, 2008, but did not receive full payment as per Medicare's schedule due to Direct General's application of the Hospital Outpatient Prospective Payment System. The action aimed for declaratory and injunctive relief concerning the calculation of PIP benefits but did not claim damages and was voluntarily dismissed on November 23, 2010. On September 11, 2012, MRI Associates of St. Pete initiated a similar class action against Direct General in Florida state court, alleging underpayment due to the improper use of the "Fee Schedule Method" instead of the "Reasonable Amount Method" under the PIP statute. This action also sought declaratory and injunctive relief, along with breach of contract claims for additional PIP benefits. Direct General notified Defendants about both actions on January 5, 2009, and October 8, 2012, respectively, and Defendants accepted these for coverage under the 2008-2009 Policies with a reservation of rights, acknowledging both actions as Related Claims despite the St. Pete MRI Action being filed after the policy period ended.

On January 21, 2015, Direct General reached a Settlement Term Sheet regarding the St. Pete MRI Action. Additionally, on December 30, 2013, Direct General informed Defendants of claims asserting misinterpretation of PIP obligations under automobile insurance policies, which were related to the Advantage MRI and St. Pete MRI Actions. This was followed by a January 3, 2014, submission of a Notice Spreadsheet containing over 70,000 claims, with the earliest dated April 3, 2008, shortly after the policy's inception. The spreadsheet did not include certain PIP demand letters received before the policy began. During discovery on May 19, 2014, Direct General identified 30 PIP demands received between January 1, 2008, and March 30, 2008, later adding four more demands, and produced the corresponding claim files. However, in an October 30, 2014, letter, Direct General argued that the Pre-Policy PIP Demands did not constitute Claims for Wrongful Acts.

Direct General asserts that while class actions and lawsuits allege it committed a Wrongful Act by using the Fee Schedule Method for paying PIP claims instead of the Reasonable Amount Method, pre-policy demands do not include such allegations. Three pre-policy demands, termed the Pre-Policy Gonzalez Demands, are letters from the Law Offices of Gonzalez & Associates, claiming overdue PIP benefits under Florida statute 627.736(10). Direct General identified at least 121 subsequent demand letters from this firm as containing "permissible" allegations, classifying them as Related Claims. Ten of these letters mirrored the Pre-Policy Claims except for claimant names and amounts.

Out of 30 pre-policy PIP demands, 28 share claim numbers with Individual Claims on Direct General’s Notice Spreadsheet. One pre-policy demand led to the Altamonte Suit, which shares the same claimant, medical provider, accident, and services as its corresponding demand; this suit was included as an exemplar of Related Claims in Direct General’s First Amended Complaint.

One pre-policy demand from Health & Well Being Therapy, received on March 26, 2008, also matched later demands regarding the same claimant and services. Some demands coded as containing "permissible" allegations simply claim benefits were unpaid, while 26 of the 30 exemplar complaints do not reference a specific payment methodology. Ten of the sample demand letters seek reimbursement under the PIP statute without attributing underpayment to a particular methodology.

Direct General reports approximately $62 million paid to settle Individual Claims and about $10.3 million for their defense, with a dispute regarding consent from Excess Insurers concerning these payments. In its First Amended Complaint, Direct General claims that health care providers, as assignees of its policyholders, have made numerous individual demands and lawsuits against it, similar to prior complaints.

Direct General claims that the "Advantage MRI Complaint" would have included certain individual claims if it had not been voluntarily dismissed. It asserts that the PIP Claims, which encompass the Advantage MRI Complaint, the St. Pete MRI Complaint, and individual claims, arise from similar facts and circumstances. Summary judgment is deemed appropriate when there is no genuine dispute regarding material facts, and the moving party must demonstrate the absence of such disputes through various forms of evidence. A material issue affects the legal outcome, while a genuine issue allows a reasonable jury to favor the non-moving party. In diversity cases, the forum state's choice-of-law rules dictate the applicable substantive law, with Tennessee law governing the current case. Insurance contracts are interpreted like other contracts, focusing on the parties' intentions and adhering to their plain terms. The defendants argue for summary judgment based on their assertion that Direct General's claims relate to earlier demands made before the policy took effect, which they claim should exclude coverage under the policy. Conversely, Direct General contends that these earlier demands were routine PIP requests and do not qualify as claims under the policy. The relevant policy stipulates that coverage applies to claims made during the policy period for acts committed after a specified retroactive date.

Coverage under the Policy is limited to Claims that are first made against the Insured during the Policy Period. A "Claim" is defined as any civil proceeding or written demand indicating an intent to hold an Insured responsible for a "Wrongful Act." A "Wrongful Act" includes any actual or alleged error, omission, misstatement, or breach of duty by the Insured in providing Professional Services, which are services performed for monetary consideration under an insurance policy or contract. This broad definition encompasses errors by Direct General in payments under its automobile insurance policies and Florida PIP law for medical services provided to its insureds.

A "Claim" can include a demand letter asserting that Direct General failed to adequately pay medical providers according to these terms. The Policy states that all Related Claims are treated as a single Claim made at the time the earliest Related Claim was first made. Related Claims are defined as those arising from the same series of facts or circumstances. Therefore, a Related Claim made after the Policy Period can still be covered if a related Claim was made within the Policy Period.

The Plaintiff sought coverage for the Advantage MRI Action on January 5, 2009, which was initiated on June 19, 2008. This action involved a class of Florida healthcare providers alleging inadequate PIP benefits due to Direct General's payment methodology, termed the "Permissive Methodology Theory." Following a voluntary dismissal of the Advantage MRI Action on November 23, 2010, the St. Pete MRI Action was filed on September 11, 2012, raising similar claims of underpayment. Direct General sought coverage for the St. Pete MRI Action on October 8, 2012, and both actions were acknowledged by the Defendants as Related Claims under the Policy, albeit under a reservation of rights.

The St. Pete MRI Action, initiated after the Policy period, was retroactively considered to have been made when the earlier Advantage MRI Action commenced, thus aligning it within the Policy period. This arrangement benefited both Plaintiff and Defendants: the Plaintiff was responsible for only one $1 million retention per Claim, while Defendants' exposure was limited to the maximum coverage for a single Policy period. On December 30, 2013, Direct General provided Defendants with a comprehensive spreadsheet (the "Notice Spreadsheet") listing over 70,000 claims for coverage under the 2008-09 Policies, asserting that these claims were related to the Advantage and St. Pete MRI Actions and thus fell within the same policy periods. 

The Notice Spreadsheet included only claims made after April 3, 2008, but Defendants discovered that Direct General had received 34 Pre-Policy Claims from January 1, 2008, to March 30, 2008, some from the same claimants as those on the Notice Spreadsheet. Defendants contend that these Pre-Policy Claims are related to the Within-Policy Claims (Advantage MRI Action, St. Pete MRI Action, and the Notice Spreadsheet claims), arguing that all claims should be treated as one Related Claim made during the pre-policy period, resulting in no coverage under the 2008-2009 policy.

Plaintiff disputes this by asserting that the Pre-Policy Claims do not relate to the Within-Policy Claims because they do not present the same legal theory. However, the Policy defines Related Claims broadly, as claims arising from related facts or circumstances, requiring only indirect relation. Prior to identifying the Pre-Policy Claims, Plaintiff had claimed that the Advantage and St. Pete MRI Actions and the claims on the Notice Spreadsheet constituted one Related Claim. Additionally, many claims on the Notice Spreadsheet were similar to the Pre-Policy Claims, with overlapping claim numbers. This comparison supports Defendants' argument that the Pre-Policy Claims should be considered Related Claims, consistent with Plaintiff's earlier characterization of the claims.

A demand letter related to the same claimant, medical provider, accident, and services as a later complaint against Direct General, known as the "Altamonte Suit," is considered a Pre-Policy Claim. The Altamonte Suit, included in the Notice Spreadsheet and attached to the First Amended Complaint as an example of claims for coverage, alleges underpayment by Direct General under the terms of its automobile insurance policy and Florida’s PIP statute, without claiming underpayment due to a specific payment methodology. Both the initial claim and the Altamonte Suit stem from Direct General's payment practices following changes to Florida’s PIP law in 2008. Since the initial demand qualifies as a Claim under the Policy, any subsequent Related Claims are deemed made at the time of the earlier demand. The defendants reference the case Cracker Barrel Old Country Store, Inc. v. Cincinnati Ins. Co. to support this relatedness argument, where prior charges led to a later claim being considered first made before the policy period. The Altamonte demand letter was received by Direct General before the policy period began on March 30, 2008, and thus is deemed related to the Altamonte Suit. The plaintiff's assertion that the Pre-Policy Claims are unrelated due to the absence of a Permissive Methodology Theory is contested, as the legal definition of Related Claims applies. The court finds no factual disputes regarding Direct General's receipt of the Pre-Policy demand and its connection to the Altamonte Suit. The plaintiff's argument that acknowledging a Pre-Policy PIP demand as related would change claims-made policies into occurrence policies is rejected, as the Policy itself defines a Claim to encompass written demands, ensuring compliance with its terms. Consequently, the related claims fall outside the coverage period of the Policy.

The Court's analysis focuses on the date of the Claim rather than the occurrence date. The Plaintiff contends that it reasonably expected not all requests for Personal Injury Protection (PIP) benefits would be classified as Claims, referencing the Amend Notice Provision Endorsement. This provision mandates that the Insured must notify the Insurer in writing of any Claim as soon as practicable, and no later than 60 days after the Policy Period ends. A Claim is defined as any written demand or notice indicating intent to hold an Insured responsible for a Wrongful Act. The term Wrongful Act encompasses various forms of professional misconduct related to services rendered. The definitions within the Policy classify demand letters for PIP benefits as Claims, as they represent demands under the Policy's criteria. The Amend Notice Provision does not modify these definitions but addresses the procedural requirements for notification to the Insurer. The timing of the notice is under the Plaintiff's control, and it cannot reasonably assume that the provision excludes PIP demands that meet the Policy's definition of a Claim. Furthermore, the Policy includes a $1,000,000 per Claim retention, indicating that the Insured would not typically seek coverage for every PIP demand due to the financial threshold. Nonetheless, routine PIP demands remain classified as Claims under the Policy, particularly as Direct General seeks coverage for these demands related to its payment methodology following changes in Florida PIP law.

Direct General is responsible for its decision not to notify Defendants of PIP demands that qualified as Claims, based on the belief that Defendants did not require such notice. The insurer cannot selectively categorize demands as related when it benefits them while excluding similar claims that would affect the determination of related claims made before the Policy period. The Court must interpret the Policy as per its plain terms. Direct General, as an experienced insurer, could have negotiated specific exclusions for routine PIP demands it has encountered since offering auto insurance in Florida. 

Plaintiffs contend that the term "Related Claims" is ambiguous and inconsistent with three policy provisions, thus should be interpreted in favor of Direct General. One provision cited is the Amend Notice Provision Endorsement, which requires notice of a Claim to be provided to insurers promptly after awareness by general counsel. The interpretation that Direct General must notify insurers within the Policy period and an additional sixty days is deemed consistent with the notice provision. 

Plaintiffs also argue that the Defendants’ interpretation conflicts with the Retroactive Date provision; however, it is clarified that as long as the earliest Related Claim occurs within the Policy period, prior wrongful acts can still be covered. Lastly, Plaintiffs warn that the Excess Insurers’ interpretation could undermine coverage for professional liability claims by linking them to numerous past auto insurance claims. This concern is characterized as speculative and hypothetical.

Direct General managed the timing and manner of its general counsel's awareness of Claims and had the capacity to negotiate the exclusion of routine PIP demands from the definition of a Claim due to its status as a sophisticated insurance corporation. The general rule of construing insurance policies against the insurer does not apply here, as the insured is a large corporation with substantial annual premiums and professional legal representation. The court found that the Defendants successfully established their right to summary judgment. The Policy's broad definition of Related Claims indicates that Pre-Policy PIP demands are connected to Claims for which the Plaintiff seeks coverage, categorizing them as one Claim made prior to the Policy's inception, thus lacking coverage under the Policy. Consequently, the court ordered the Defendants' Joint Motion for Summary Judgment to be granted, denied all remaining motions as moot, and directed the Clerk to close the case. 

Further, while the Plaintiff noted receiving a demand letter after the inception of the 2008-2009 Policies, there was no evidence provided to dispute that the letter was received prior to the Policy's start date. The demand letter from Mid Florida Imaging was recorded as received on March 19, 2008, which is before the 2008-2009 Policies began. As per legal precedent, facts presented by the Defendants were deemed admitted if supported by the record and not specifically disputed by the Plaintiff. The Policy defines a "Claim" as any civil proceeding or written demand indicating intent to hold an Insured accountable for a Wrongful Act.